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DRC

Mining companies operating in the Democratic Republic of Congo have submitted their own proposals regarding the recently announced new mining code which has raised some contentious issues. However, given that the companies had been in discussion with the Mines Ministry ahead of the ratification of the new code without their proposed view being taken into account, we fear that the proposals will fall on deaf ears. Should the new mining code remain in place, as we feel it will, it could seriously affect new mining investment in one of the world’s most mineral rich areas.

The mining companies have issued a press release regarding their proposals for constructive adjustments to the new code as follows:

Mining industry representatives* in the Democratic Republic of Congo have submitted a formal proposal to the country’s Ministry of Mines that is designed to address concerns about the recently revised mining code as well as the government’s revenue needs.

Among other things, it proposes linking a sliding scale of royalty rates to the prices of the key commodities, which industry representatives believe would be a more effective mechanism than the windfall tax introduced in the new code and at current prices would immediately give the government a higher share of revenues than what is provided in the new code. It also deals with stability arrangements, state guarantees and mining conventions.

Along with the stability afforded to convention holders, enshrined in the 2002 mining code is a 10 year stability clause which provides that the holders of mining and exploration titles will continue to be governed by the terms of the 2002 mining code for such period in the event of the implementation of any new law.

Article 276:
“The State guarantees that the provisions of the present Code can only be modified if, and only if, this Code itself is the subject of a legislative amendment adopted by Parliament.

The rights attached to or deriving from an exploration licence or mining exploitation licence granted and valid on the date of the enactment of such a legislative modification, as well as the rights relating to or deriving from the exploitation licence subsequently granted by virtue of such an exploration licence, including among others, the tax, customs and exchange regimes set forth in this Code, remain acquired and inviolable for a ten-year period from the date of:

the entry into force of the legislative modification for the valid exploitation licences existing as of that date;

the granting of the exploitation licence subsequently granted by virtue of a valid exploration licence existing on the date of entry into force of the legislative modification.”

However, the proposal accepts 76% of the articles in the 2018 code and suggests changes to the rest only to ensure the effectiveness and legality of the code. The mining industry representatives believe these changes will resolve issues with the code and contractual relationships while giving the DRC and its people increased participation in the proceeds of mining.

* Issued on behalf of members of the DRC mining industry representing more than 85% of the DRC’s copper, cobalt and gold production and most significant development projects: Randgold Resources, Glencore, Ivanhoe Mines, Gold Mountain International/ Zijin Mining Group, MMG Limited, Crystal River Global Ltd and China Molybdenum Co, Ltd (CMOC), AngloGold Ashanti.

In a statement to local media Randgold Resources CEO, and driving force, Mark Bristow, reported excellent progress at its 45%-owned Kibali gold mine in the DRC, which it operates. It built the mine ahead of schedule as an open pit operation with the underground section to follow, despite it being located in one of the most remote parts of the African continent in the northeast of the mineral rich Democratic Republic of Congo (DRC) close to its border with South Sudan. The construction logistics were daunting with virtually all the heavy equipment needing to be trucked to the site from ports far away on Africa’s east coast.

Kibali is also owned as to 45% by the much larger Anglogold Ashanti, which ceded construction and management to Randgold because of the latter’s strong prior expertise in constructing and operating gold mines in Mali and Cote d’Ivoire and in maintaining good relations with the governments in those nations – even through some major political changes. The balance of 10% of Kibali is owned by DRC parastatal, Sokimo. However, while technical progress has perhaps exceeded expectations there are obviously some potential political pitfalls ahead if they cannot be warded off through negotiations with government, Bristow also warned.

The Kibali gold mine, nowadays one of the largest such operations in Africa, remains on track to achieve its production target of 610,000 ounces this year as its underground operations and the integration and automation of the vertical shaft enters the final commissioning and automation stage, Bristow told the audience at an event in DRC capital, Kinshasa. The mine is anticipating a significant increase in production once the final shaft commissioning, which remains on a tight schedule, has been completed.

At a briefing for local media, Bristow said in spite of the high level of activity at the mine, there had been a significant improvement in the safety statistics, with its total injury frequency rate continuing to decrease and lost time injury frequency rate down to 0.31 per million hours worked in the September quarter.

Following the anticipated completion of the underground mine in the fourth quarter, the only major capital project still in the works would be Kibali’s third new hydropower station, currently being constructed by an all-Congolese contracting team. Bristow said the availability of self-generated hydropower and the mine’s high degree of mechanisation and automation were important factors in Kibali’s ability to sustain its profitability throughout the ups and downs of the gold price cycle.

To date, over $2 billion has been spent on acquiring and developing Kibali, of which the majority had been paid out in the form of taxes, permits, infrastructure and payments to local contractors and suppliers.

“With capital expenditure tapering off, Kibali should now be preparing to pay back the loans taken to fund its development. We are concerned, however, that its ability to do so will be impeded by the increasing amount of debt – currently standing at over $200 million – owed to the mine by the government. TVA refunds, excess taxes and royalties in violation of the country’s mining code, make up the bulk of this amount,” Bristow said.

Another troubling development was the recent re-introduction to parliament by the Ministry of Mines of a proposed new mining code which is exactly the same as the one the government withdrew in 2015 after it was comprehensively demonstrated that it would seriously damage or even destroy the Congolese mining industry.

“Randgold has proven and continues to prove that it is committed to the DRC and to the development of a gold mining industry capable of making a substantial and lasting contribution to the country’s economy. Despite all the challenges, including the volatile political climate and a deteriorating economy, we continue to invest here. Our exploration teams are searching for our next big discovery in the greenstone belt of the north-eastern DRC. In line with our local supply strategy, Kibali spent approximately $40 million with Congolese contractors in the past three months alone. We are developing substantial agribusiness and other community projects. And perhaps most important, we invest in the training and empowering of Congolese nationals, who already make up most of the Kibali management team, thus making a contribution of incalculable value to the expansion of the country’s skills base,” Bristow said.

“The DRC has all the materials for building a sustainable mining industry but that will require a fully committed partnership between the government on the one hand and the mining companies on the other. Despite recent indications to the contrary, we remain confident that such a partnership is within reach, and that the government will see the critical importance of maintaining a stable, investor-friendly fiscal and regulatory environment for the country’s mining sector. In this regard, we would welcome the opportunity to work with the government in jointly selecting an independent group of experts to benchmark the DRC mining code and its fiscal framework and to model the impact of the new proposed code, which we believe will be damaging to the development of the industry.”

These are, in effect, dire warnings by Bristow and illustrate some of the potential problems arising when working with the DRC government. The DRC has enormous mineral potential for the production of many strategic metals and minerals, but the kinds of problems noted by Bristow could have a serious impact on further potential inward investment in the mining sector and could also adversely affect ongoing operations in the country. The country had a hugely successful mining industry back in the mid 20th Century, but this largely fell into disrepair in the latter half of the century as foreign expertise was shunned. One hopes this will not happen again. The world needs the metals and minerals the DRC can supply.

Randgold Resources, the biggest London listed gold miner by market capitalisation and the 14th largest gold producing company in the world, currently operates the two biggest gold mines in Africa according to consultancy Metals Focus – the Loulo-Gounkoto complex in Mali and Kibali in the DRC – and both are among the world’s Top 20 gold producing operations – See:World Top 20 Gold Miners and Mines.

Last year Loulo-Gounkoto, at No. 13 on the global list, was the bigger producer, but Kibali was experiencing some technical and operational difficulties which reduced its output a little, but still came in as the world’s 16th largest gold mine by production. It is currently putting the problems behind it as its underground operations build up to full output and it should regain its top spot among African gold mines by the end of the current year.

The mine is owned 45% by Randgold, 45% by Anglogold Ashanti, with the remaining 10% by DRC parastatal, Sokimo. Randgold built the mine – located in one of the most remote areas of the African continent close to the DRC’s north eastern border with South Sudan – and operates it.

The company’s latest statement on the mine and its progress is published here in full, but note CEO Mark Bristow’s warning about possible DRC governmental goalpost-moving on the country’s mining code:

KIBALI HEADS FOR FULL PRODUCTION AS UNDERGROUND MINE NEARS COMPLETION AND SECOND HYDROPOWER STATION IS COMMISSIONED

The Kibali gold mine’s underground operation, which will significantly increase production, is on track to start commissioning in the third quarter of this year, Randgold Resources chief executive Mark Bristow said at a media briefing.

The mine is forecast to deliver approximately 610,000 ounces of gold this year, up from 585,000 ounces in 2016, but annual production is scheduled to rise to around 750,000 ounces from 2018, when the underground operation will make it fully functional.

Bristow noted that Kibali ended 2016 with a creditable performance after having to contend with a range of operational challenges as well as the constraints imposed by limited open pit mining flexibility. In addition to dealing with these issues, the Kibali team succeeded in keeping the underground development on track, successfully constructing and commissioning four ultrafine grind mills in the metallurgy circuit, as well as progressing work on the mine’s second new hydropower station which was commissioned in February this year. The third and last of the new hydropower stations is currently being built by an all-Congolese contracting group.

“Kibali has stayed on course to become one of the world’s great gold mines despite the challenges of last year and the volatile political climate in the DRC at present,” he said.

“Randgold remains committed to the DRC and is confident that its government, politicians and civil society have the will as well as the capacity to work together to secure the country’s future. We therefore continue to invest in exploration here and to lead the way in developing the north eastern DRC as a major new gold mining region. Our engagement with the country and its people is also evident in our substantial investment in local economic development and community upliftment programmes. These include macro and micro agribusinesses designed not only to provide regional food security but to generate surplus produce for export.”

It was a source of concern, however, that the DRC government had once again signalled its intention of reviewing the country’s 2002 mining code with the clear intention of maximising state revenue, Bristow said. This could have a very negative impact not only on the mining industry but also on the economy.

“Now more than ever the DRC should be focused on retaining its existing investors and attracting new ones. It’s certainly not the time to harvest more from less for short term gain. It’s my sincere hope that this time round the government will engage the mining sector fully in the proposed review to achieve an outcome that will be in the best interests of the Congolese economy as well as the country’s mining sector,” he said.

“The existing code is in fact a good one but it is not always being applied effectively and there are still many mining operations that do not operate under the code. There are also a number of issues and challenges which mining companies are having to face which make operating in the DRC more challenging. In Kibali’s case, these issues include more than $200 million in unpaid TVA and duty refunds.”

We have commented here before on Randgold Resources’ remarkable achievement in building Africa’s largest gold mine in one of the most remote locations on the Continent. In his latest progress report on the operation, Randgold CEO Mark Bristow had the following comments to make on the operation’s latest progress:

After a slow start to 2016, the Kibali gold mine is picking up speed, with the substantial performance improvement forecast for the second half of the year already manifesting itself.

Speaking at a briefing for local media, Bristow said Kibali was delivering progress on all fronts towards the achievement of its 2016 business plan, with a ‘step change’ in production expected in the third and fourth quarters of the year. Throughput was currently at or above the nameplate specification and there had been a big improvement in the recovery rate, while costs were also expected to be better.

He noted that the mine was capable of funding the continued capital required for the completion of its development with the full commissioning of its underground operation scheduled for the second half of 2017. The second of its hydropower stations, Ambarau, is planning to deliver its first power in November this year. Construction of the third, Azambi, will start soon with site preparations underway.

“In line with our policy of supporting local economic development in our host countries, all the contracts for the work on Azambi have been awarded to companies with a majority Congolese shareholding, while the main contractor, who will be working in partnership with our capital projects team, is 100% locally owned,” Bristow said.

“Our local supply strategy is evidenced by the fact that in the year to date Kibali has spent more than $141 million with Congolese contractors. In addition to construction work, we also rely on local suppliers for services ranging from catering to trucking.”

Bristow said despite the stresses associated with developing a project the size of Kibali in a remote part of a country that was still evolving politically, Randgold had a long term commitment to a partnership with the DRC and was laying the foundation for further investment there through its exploration programmes around the mine and further afield. “We see ourselves continuing to play a significant role in the growth of the Congolese mining industry,” he said.

This commitment extended to its support for local economic and general community development through a range of initiatives. These include a number of large-scale agribusiness projects which are designed not only to provide economic activity and a secure food supply in the near future but also to leave a sustainable legacy to the community after the mine’s eventual closure.

Randgold operates the Kibali mine in north east DRC which is a joint venture between Randgold (45%), AngloGold Ashanti (45%) and the Congolese parastatal SOKIMO (10%).

Followers of perhaps the best performing gold mining major of the past few years are directed to the following article I’ve published on the Seeking Alpha website: Randgold: Tough Quarter, Good Results. Interestingly Randgold (LSE: RRS, NASDAQ: GOLD)’s stock price has not risen nearly as much as some of its peers but that is because of its far better performance while virtually all the other major gold stocks were dropping like stones. It has no debt, has not needed to take any impairments and is operating a progressive dividend policy where again most of its peers have been slashing their shareholder payments. It has thus just announced a 10% dividend increase to $0.66 a share.

Highlights from Q1 2016 are as follows:

Profits up 19% quarter on quarter and 25% on corresponding quarter of prior year

Production down 11% quarter on quarter but up 4% on corresponding quarter of prior year

Total cash cost/oz up 3% quarter on quarter but down 8% on corresponding quarter of prior year

Cash increases 19% to $253.8 million on the back of reduced total cash costs and higher gold price

Solid quarter from Loulo-Gounkoto with production in line with plan and significant decrease in total cash cost/oz

Morila delivers steady performance with lower costs

Tongon production impacted by quaternary crushers commissioning and power supply interruptions

For the record here follows a statement from Randgold Resources noting the success of its new Kibali mine in the DRC, which is already Africa’s biggest gold mine in terms of annual gold output. Kibali is jointly owned by Randgold and AngloGold Ashanti, each holding 45% with the balance owned by DRC parastatal SOKIMO. Randgold is the operator.

The Kibali gold mine in the Democratic Republic of Congo was the star performer in Randgold’s portfolio of operations in 2015, exceeding its target by 7% to contribute 642 720 ounces to the group’s record production for the year.

Speaking at a local media briefing here, Randgold chief executive Mark Bristow noted that the two-year-old operation’s remarkable success was a tribute to an effective cooperative effort which had united the developers, the authorities, the community, the contractors and suppliers in a strong commitment and a common purpose.

“It’s been a significant achievement for a country which is rich in mineral resources but has not always managed to make the most of this endowment. Kibali is going to make a major impact on the Congolese economy – it has already spent more than $1 billion with local service and goods providers – and I believe it will also be the flagship for the development of a major gold mining industry in this country,” he said.

Bristow cautioned, however, that Kibali was still a work in progress and faced many challenges as it worked towards its completion in 2018, when the underground mine was expected to be fully operational.

“The next two years will be particularly tough, as Kibali continues to ramp up its underground production within the constraints of a lower grade and the consequent need for a higher throughput, and we are therefore forecasting an output of 610 000 ounces for 2016 and 620 000 ounces for 2017,” he said.

“To ensure Kibali’s continued delivery, our partnership with government and the community will if anything have to be strengthened. For its part, government has to focus on the urgent need to establish an effective local administration, in an area where rapid population growth and the lack of functional structures are generating a complex social dynamic that will become increasingly difficult to deal with.”

Bristow said that despite the stressed gold market, the operational challenges at Kibali and socio-political issues in the DRC, Randgold remained committed to increasing its presence in the country, and had recently entered into a new joint-venture agreement – its third in the region – with government-owned Société Minière de Kilo-Moto SA (SOKIMO) and Moku Goldmines AG (Moku) for the Moku-Beverendi gold exploration project, along the same greenstone belt that hosts Kibali. In terms of the agreement with the owner of the project, Société Minière de Moku-Beverendi SA, Randgold can earn in a minimum 51% stake in the project by funding and conducting exploration and completing a prefeasibility study. This addition to its portfolio extends Randgold’s exploration footprint in the DRC to 7 824km², spanning the major gold belt in the north-east of the country.

“Our commitment to expanding our presence and stepping up our greenfields exploration here demonstrates our long term intent of finding world-class gold deposits and developing them into profitable mines, thus contributing to the DRC’s continuing evolution as a democratic society with a robust economy,” Bristow said.

The ongoing search for additional reserve ounces at Kibali will secure its future as a long-life mine and one of Africa’s largest gold producers, Randgold Resources chief executive Mark Bristow said in a speech in Kinshasa, DRC. Randgold develops and operates the mine and has a 45% stake, which it owns in partnership with AngloGold Ashanti (also 45% owners) and the Congolese parastatal SOKIMO which holds the 10% balance.

In 2014, its first full year of operation, Kibali produced 526,627 ounces of gold at a total cash cost of $573/oz and Bristow told a media briefing here that production and cost for the first quarter of 2015 were likely to be within guidance.

“When you’re producing gold at the rate of around 600,000 ounces per year, the need to replace the reserves that are consumed is of critical importance,” he said. “We believe Kibali’s KZ structure hosts significant additional resources, and our continuing exploration is confirming this potential. A number of targets have been identified and the Kalimva-Ikamva and Kanga sud targets have been prioritised for in-depth investigation.” One suspects that the promising geology around the mine should host sufficient gold resources to keep it in operation well beyond its initial 18 year mine life.

Kibali is still a work in progress, with its third open pit now operational and the development of its underground mine ahead of schedule. Ore from its stopes is already being delivered to the plant but the underground mine is only expected to be in full production by 2018. The first of the mine’s three hydropower plants was commissioned last year and work on the second is well underway. The metallurgical plant is operating at its design capacity and construction of the paste plant is nearing completion. Despite the high level of production and development activity – some 5,000 people are currently employed on site – Kibali is maintaining a good safety record, with the lost-time injury rate reduced by 16% last year.

Kibali represents an initial investment of more than US$2 billion and at a gold price of $1,200/oz and its current mine plan is only expected to repay its funding after 2024. Thanks to its strong cash flow, however, it has already been able to repay the first tranche of its debt in March. The whole project has been a remarkable success to date, particularly given its location – almost right in the geographical centre of the African continent, close to the South Sudan and Ugnadan borders which necessitated the bulk of the supplies and equipment having to be delivered from the African east coast rather than through the DRC itself.

Bristow said Kibali was continuing to invest in the development of the regional economy by using local contractors and suppliers wherever possible. A prefeasibility study on a palm oil project, designed to provide a sustainable source of post-mining economic activity for the region, has been completed and work on a bankable feasibility study has started.

On the issue of the DRC’s proposed new mining code, Bristow said he welcomed Prime Minister Augustin Matata Ponyo’s recent statement that the government was ready to re-engage with the mining industry with the intention to review the draft submitted to parliament and was open to further discussions with the sector.

“We were surprised and disappointed when the ministry of mines presented a draft code to parliament without taking the industry’s comments on board and which departed radically from the common ground we thought had been established. As the DRC Chamber of Mines warned at the time, enactment of the code in this investment-hostile form will have a catastrophic effect not only on the mining sector but on the Congolese economy generally. It was therefore very heartening to learn from the prime minister that the government has recommitted itself to negotiation,” he said.